Mid-sized businesses unfazed by troubling economic outlook

While the outlook for Australia’s mid-market over the coming year is promising, less comforting is the broader economic picture. What is driving mid-market confidence, and will this translate to a healthy national economy?

Only half (51 per cent) of Australia’s mid-sized businesses feel optimistic about the nation’s economic outlook for the coming year. Despite this, 77 per cent expect their own revenue to rise over the same period.

While it’s difficult to judge how realistic these expectations are, they largely track with mid-market business performance over the past year, as 67 per cent of mid-level respondents reported 2023 revenue gains. These and other results were shared in MYOB’s recent survey of 505 mid-sized Australian businesses.

The forecast

A majority (56 per cent) of decision-makers within businesses of between 20 and 500 full-time employees are planning to increase employee wages in the coming year. To get there, they are prioritising the following three business goals in 2024:

1. Expanding their local presence (36 per cent)
2. Increasing revenue (33 per cent)
3. Securing more customers (33 per cent)

Also contributing to the growth, artificial intelligence (AI) is playing an increasingly large role in the operations of Australia’s mid-market economy. While the majority see the potential in AI, more than three-quarters are already using it. The uses of AI are many and varied, but it’s most commonly being put to the following ends:

1. Creating marketing and social media posts (37 per cent)
2. Copywriting of technical documents, reports, and training materials (37 per cent)
3. Financial monitoring and analysis (37 per cent)

“Business owners are using AI tools to help boost their business effectiveness as well as navigate challenging conditions,” said the head of product for enterprise and practice at MYOB, Valantis Vais.

“Seventy-one per cent believe AI will impact their industry in the next five years, so it’s vital for leaders to experiment with this technology to see how it can enhance their business operations. If they don’t, they’re at risk of being left behind,” said Mr Vais.

More broadly, respondents said AI could have the biggest impact on their industry by improving operational productivity and efficiency (38 per cent). Following closely behind was the belief that the technology will produce better data to support management decisions (37 per cent) and by improving control of automated systems (36 per cent).

“Eighty-eight per cent of respondents regularly measure business productivity, so it’s not surprising that mid-market leaders are already leaning on AI to help improve and measure this to ensure optimal results,” said Mr Vais.

The importance of mid-market health

Middle-sized businesses are an interesting part of the Australian economy. While, in 2022, they contributed approximately 22 per cent to the nation’s gross domestic product (GDP), some estimate they make up only 2 per cent of the nation’s businesses. They sit at the junction between larger, more hierarchical and less flexible businesses and the smaller, more agile and less consistent smaller ones.

“Despite being such a central player in Australia’s economy, the sector typically falls under the radar, with much of the media and political attention going to multinationals and home-grown corporates,” said Consultancy.com.au.

As noted by McCrindle: “They are strongly focused on innovation. For leaders in the middle market, innovation has moved away from just being about the product to the systems and processes through which the product reaches the consumer.”

“Business leaders see technology as a key way to adapt in a world of digitalisation, particularly internal technological innovations. They also recognise the challenge of securing suitably skilled talent to continue to drive growth in their businesses.”

A healthy mid-market, therefore, speaks to the broader economic outlook across Australia. Indeed, the mid-market, whose revenue grew by as much as 10 per cent over the half-decade to 2020, is often referred to as the “engine room” of the national economy.

Medium-sized businesses, said Grant Thornton, exist as both small and large businesses and yet are neither: “They can access some of the advantages for small businesses, but are also subject to much of the same bureaucracy as big business – but without the scale to absorb the time and costs as efficiently as the truly big end of town.”

While it’s unclear just how much a strong mid-market will move the needle and a broader, economy-wide level – data does suggest that mid-market contributions are nothing to balk at. Forecasting by Grant Thornton suggests that a unique opportunity exists at the mid-market level.

“It’s fair to say that we underestimate the contribution mid-sized business makes to the Australian economy. They are small in number – but are big engines for productivity, employment and tax contribution. They are the small businesses of yesterday, and the big businesses of tomorrow,” concluded Grant Thornton.